A systematic withdrawal plan (SWP) is the scheme in which you can redeem your investment from mutual fund schemes. In this, you can redeem your money in installments. SWP is the opposite of SIP (Systematic investment plan). SIP is the plan in which you invest monthly money whereas in SWP you will withdrawal your investment in cash during a particular period. In SWP you can withdrawal the cash according to your requirement. The choice is yours that you want to withdraw the fixed amount or just the capital investment. The amount which you want to withdraw with direct transfer to your account.
FEATURES OF SYSTEMATIC WITHDRAWAL PLAN
- Firstly, in the SWP system, you can redeem your investment regularly.
- Secondly, it is only up to you that you want to withdrawal the fixed amount or only gains.
- Thirdly, you can schedule the withdrawal according to your needs.
- Lastly, you can seek regular income from the investment.
NEED OF SYSTEMATIC WITHDRAWAL PLAN SCHEME
Why a person needs a Systematic withdrawal plan? There are so many fluctuations in the market and it directly affects your mutual funds. When you are at that point everything related to your goal is completed and the only thing which is left is money but at that time you cannot withdraw money as there a particular time of such scheme for withdrawing the money. In this situation, the SWP scheme is the best in which you can withdraw the amount according to your financial needs. The SWP will provide you the money whenever you need and giving you the surety of providing funds at the right time. It also provides you the regular income besides your salary if you want to invest your money in some other project.
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WORKING OF SYSTEMATIC WITHDRAWAL PLAN
SWP scheme is not similar to the fixed deposit. In SWP mutual funds scheme when you withdraw the amount from the investment then the value of your fund units will be reduced.
- There will be a reduction in your mutual fund units whenever you withdraw the amount.
- Suppose Rs. 10 is the Net Asset Value (NAV) of your mutual funds and you will withdraw an amount of Rs. 4000 and your total fund units are 6000 then the number of units which you have withdrawal is 400.
- The total units left in your mutual fund account is 5600 (6000-400).
- NAV can be high or low and the reduction of fund units will totally depend on this.
- Plan the SWP according to your needs and goals.
BENEFITS OF SYSTEMATIC WITHDRAWAL PLAN
- Tax benefits – If you want to gain regular income from your investment then you should surely opt for the SWP scheme. In this scheme you don’t have to pay any tax or no tax will be deducted from the source of investment.
- Capital appreciation – In the SWP scheme, your investment will be safe, you don’t have to pay the tax, and even you receive the good return amount. The main important point is that it’s your choice for withdrawing the fixed amount of capital amount. The money is not stagnant in the SWP scheme.
- Liquidity – SWP scheme provides you more liquidity as compared to other scheme likes fixed deposits, pension plan, etc. The SWP scheme provides you the money in urgency and maintains easy and excellent liquidity.
- Rupee cost averaging – In the SWP scheme, a particular number of the amount which you choose will be redeemed regularly. At the time when the market is high and you redeem a fixed amount from SWP then you will have to face a lesser amount of loss as compared to the time when the market is low.
TYPES OF MUTUAL FUNDS WORKS WELL FOR SWP
3 main types of mutual funds work well for SWP are as follows –
- Debit mutual fund - In this investment will be done as fixed-income assets like bonds and debentures. It is of low-risk investment and low return avenue.
- Equity mutual fund - In this, the return risk is very high as you have to invest in the stock market.
- Hybrid mutual fund - It is a combined form of debit + equity mutual fund investment. It provides you stability during debt mutual fund investment and capital appreciation potential from equity potential fund investment.
IMPORTANT THINGS TO NOTE
- The redemption is always made on the basis of variable NAV and according to this gains will be counted. If you find any problem regarding the variable tax, then make sure that you will take the help of professionals and make the right decision.
- The investment should be made according to market performance and returns. The best thing about linking with the market is that you can keep it for a longer period of time.
- From so many decades’ pension on retirements is provided to the people. Try to keep your inflation rate for expenses which can increase the withdrawal amount.
- SWP scheme will help the people in regular income at the time of retirement or leaving full-time jobs.
DISADVANTAGES OF SYSTEMATIC WITHDRAWAL PLAN
Are you thinking that SWP is magical and the best option for investment? There are some disadvantages of SWP which is noted down –
- Firstly, it will help you only when the investment starts with a huge amount.
- Secondly, the more you withdraw funds, the more will be the reduction in your fund points.
- Thirdly, a low market will directly affect your mutual fund investment.
- Lastly, the delivering momentum of SWP will be good as long as fund flow is high in a bull market.
A systematic withdrawal plan is a mutual fund investment plan. Undoubtedly, there are some advantages like credits of investment, withdrawal according to customer choice, no deposit of tax, etc., and some limitations like when you withdraw amount then there will a deduction in your fund points, help you when the investment will start with a huge amount and many more. It will work according to the Net asset value (NAV) in the market. Particularly, it will help those people who want the money for achieving their goals in business or any other things.
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